Yerbaé is raising at a $34 million pre-money valuation with no discount. The low price rating for this deal reflects this unusually high valuation. While Yerbaé did generate over $3.6 million in revenue in 2019, this revenue multiple is on the high end for early-stage startups. Therefore, Yerbaé’s price rating is quite low.

Yerbaé is operating in a large market at the intersection of sparkling beverages and energy drinks and is therefore highly rated on this metric. The sparkling beverage market is growing rapidly. It’s valued at $24.51 billion in 2019 and expected to grow at an 11.8% CAGR between 2020 and 2027. The energy drink market is larger than that of sparkling waters and is also expanding, at a projected 7.2% CAGR from a $53 billion valuation in 2018. Theoretically, Yerbaé’s total addressable market is the sum of these markets (roughly $77 billion), though there is likely some overlap between the markets. If Yerbaé could capture even 5% of each market, it’s obtainable market is almost $4 billion. 

Yerbaé was founded by a husband and wife team, Karrie and Todd Gibson. Todd, Yerbaé’s CEO, is a beverage industry veteran who has served as an executive at three companies sold to Coca Cola and Pepsi: Hansen’s Energy, FUSE, and NOS Energy. Before Yerbaé, Todd was the Vice President of Sales and Marketing at Vintage Tech Recyclers, which was bought by Kuusakoski. 

Karrie Gibson, Yerbaé’s COO, was the original founder of Vintage Tech Recyclers, an electronics recycling firm. She created the business in 2005 and built it to eventual acquisition in 2015. Karrie also co-founded Sales University Group before joining the Yerbaé team. 

Yerbaé’s team also includes Seth Smith and John Bair. Smith, the Vice President of Business Development, generates Yerbaé’s retail partnerships. He previously served as the Director of Sales for the Gibsons’ previous business, Vintage Tech Recyclers. Blair, Yerbaé’s Executive Vice President, is a beverage industry veteran with 30 years of experience at beverage companies including SoBe, Pepsi, Fuze, and more. 

The depth of the beverage industry experience on Yerbaé’s founding team — specifically with regard to acquisition relationships with big-name beverage corporations — means that the company’s team rating is solid. 

Sparkling water, energy drinks, and plant-based beverages are all buzzing spaces. While that means that Yerbaé’s addressable market is large, it also means that the company faces significant competition within any one of those categories. For example, Proper Wild also offers plant-based energy beverages (in the form of condensed energy “shots”) and has developed a more compelling consumer brand than Yerbaé. 

That being said, Yerbaé has already developed deep retailer relationships. For example, the company has entered a national rollout program with the Compass Group to hit 10,000 new locations over the next two years. While a version of Yerbaé’s product could easily be replicated or improved upon by competitors, Yerbaé has a significant presence in stores nationwide, which gives it a competitive advantage. The combination of these factors leads to Yerbaé’s middle-of-the-road differentiation rating. 

Yerbaé has sold over 10 million cans to consumers nationwide since its founding in 2017. The company generated $1.89 million in revenue in 2018 — its second year of operations — and achieved over 50% year-over-year growth to $3.61 million in revenue last year (2019). The company is on track to post significant growth in 2020, reporting $2.49M in net sales for the first six months of this year. 

Yerbaé is still unprofitable, having posted a $2.69 million net loss for 2019. However, the company has paid off its long-term debt already and is in a good position to move toward profitability over the next several years. The combination of Yerbaé’s significant revenue traction and lack of long-term debt mean that the company’s performance rating is one of its highest. 

While Yerbaé has already demonstrated product-market fit and formed relationships with key nationwide retailers, the company is raising at a high valuation. Therefore, there is little room for error in the company’s operations over the next several years. Faltering interest from retailers, limited innovation toward new product lines, or slim margins all pose risks as the company expands. Yerbaé must continue to grow efficiently, else investors will reap minimal benefit from shares in an over-valued company. 

Yerbaé has penetrated the energy drink and sparkling water market significantly and sells its products via diverse channels blended between retail distribution and DTC sales. While competitors in sparkling water, plant-based energy drinks, or other tangential beverage categories may focus on building a strong DTC brand and capturing high-margin online sales, achieving significant value in the food and beverage industry is almost impossible without securing a presence in major nationwide retailers. Yerbaé has a competitive advantage in this regard, and the company’s founders are well-equipped to navigate toward acquisition by a major beverage corporation in the next several years. 

Yerbaé has been rated a Deal to Watch because it has achieved significant traction with over 10 million cans sold to date, has secured vital retail partnerships nationwide, and is led by a management team with deep experience in the beverage industry. 

Though Yerbaé faces competition from all sides in the sparkling water market, the energy drink market, and other tangential categories, few competitors have achieved nationwide distribution to the extent that Yerbaé has. Investors should be wary of the company’s high valuation, but Yerbaé has demonstrated solid operational efficiency so far and is well-positioned for an eventual acquisition. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Katy Dolan.